SINGAPORE - Oil pared an initial, sharp jump as Iranian media appeared to downplay the impact of Israeli strikes that followed last weekend’s unprecedented bombardment by Iran.
Brent crude was up 1.3 per cent at US$88.20 per barrel at about 3.15pm Singapore time, after earlier soaring around 3 per cent to above US$90 a barrel on concerns over the potential for a wider conflict that could endanger crude supplies. US West Texas Intermediate (WTI) rose 1.4 per cent to US$83.87 a barrel.
Israel launched a strike on Iran, according to two US officials, but the Islamic Republic’s semi-official Tasnim news agency denied the reports, and said the Isfahan nuclear facility was safe.
The International Atomic Energy Agency confirmed there was no damage at nuclear sites.
Traders had been girding for an Israeli response to last weekend’s missile and drone attack, with the rhetoric escalating as Tehran warned against striking its nuclear facilities. The Middle East accounts for about a third of crude supply.
“Depending on the nature of strikes, we are moving closer towards a scenario where supply risks become a reality,” said Mr Warren Patterson, head of commodities strategy at ING in Singapore. “The market will likely have to start pricing in an even larger risk premium.”
Crude has rallied in 2024, with gains driven by the worsening hostilities in the Middle East, as well as Opec+ supply cuts that have tightened the market.
Higher energy prices, if sustained, would boost risks for the global economy and pose a challenge for central bankers as they seek to tame inflation.
The supply curbs orchestrated by Opec+, which include cutbacks in Saudi Arabia as well as Russia, mean that the producer group has a buffer of unused capacity of several million barrels a day.
At present, the output restrictions are set to last through the first half of 2024.
Trading volumes spiked, with about 470,000 lots of Brent and nearly 370,000 of WTI traded by 2pm in Singapore, far more than usual.
There was also active trading of Brent June and July call options – which profit when prices gain. The premium of call options over put options also surged to around the highest since October.
“We continue to highlight the heightened risk that this war will move up the escalation ladder,” RBC Capital Markets analysts including Helima Croft said in a note before crude’s spike. “Oil supplies could be caught in the cross hairs of this metastasising conflict.” BLOOMBERG
